Enforcement and dispute resolution under the Withdrawal Agreement and any future relationship agreement: no role for the CJEU….or is there?

On its face, the thrust of the UK Government's Future Partnership Paper on Enforcement and Dispute Resolution (the Paper), published on 23 August, is to rule out the jurisdiction of the Court of Justice of the European Union (CJEU) to determine the enforcement of rights and obligations by individuals and businesses derived under the Withdrawal Agreement (and any future relationship agreement) and disputes between the EU and the UK.  Since the Paper was published, the Prime Minister has again reiterated the Government's position that "the UK will be able to make its own laws - Parliament will make our laws - it is British judges that will interpret those laws, and it will be the British Supreme Court that will be the ultimate arbiter of those laws."

However, as discussed below, whilst perhaps consistent with the stage of negotiations, the Paper is drafted to leave considerable room for manoeuvre, and it leaves many questions unanswered regarding enforcement of rights and obligations under the Withdrawal Agreement and any future relationship agreements and dispute resolution between the UK and the EU after Brexit.

The Paper follows the publication on 22 August of the UK Government's Future Partnership Paper on Providing a Cross-border Civil Judicial Cooperation Framework, considered in our blog post here, which presented the UK's position on the extent to which current EU rules on choice of law, jurisdiction and enforcement of judgments should continue to apply as between the UK and the EU Member States post-Brexit.  

State to state dispute resolution

• By what body will disputes between the UK and the EU be resolved?

The Paper's discussion of "dispute resolution" - in the sense of resolution of disputes between the UK and the EU concerning the Withdrawal Agreement or any future relationship agreement - begins with a categorical rejection of the possibility that the CJEU would have any role. Indeed, in paragraph 29 it states "one common feature of most international agreements, including all agreements between the EU and a third country, is that the courts of one party are not given direct jurisdiction over the other in order to resolve disputes between them." The Paper further asserts that placing the CJEU as the ultimate arbiter of disputes would be incompatible with the principle of a fair and neutral means of resolving disputes and against the principle of mutual respect for sovereignty. It continues by underlining that no state has submitted to the direct jurisdiction of a court in which it does not have representation.

Having ruled out the jurisdiction of the CJEU in determining disputes, the Paper then proceeds to consider a number of possible different options for resolution of disputes between the UK and the EU, which are "presented purely illustratively", rather than as a position as such. Consistent with the Brexit White Paper, the Paper speculates that UK-EU disputes may be resolved by a joint committee or by arbitration, such as the mechanism in the CETA or the WTO dispute resolution procedure, both of which involve an arbitration panel. The paper is clear that there is no commitment to any of the aspects of the various models for state to state dispute resolution on which the paper draws. The implication perhaps is that the UK is open to negotiation as to which mechanism might be appropriate.

• Interpreting the Withdrawal Agreement: a continuing role for CJEU jurisprudence and the CJEU?

It may be uncontroversial in the usual course that the EU's own dispute resolution body would not be the appropriate body for resolution of state to state disputes in an agreement between the EU and a third state.

However, the paper acknowledges that some continuing role for CJEU decisions on the interpretation of EU law may be necessary, in the interests of reducing or eliminating divergence of interpretation, for example where specific aspects of an agreement, which are identical to rules of, or acts done under, EU law, are implemented. The Paper draws a distinction between CJEU jurisprudence that pre-dates, and post-dates, the UK's exit.

In respect of pre-Agreement CJEU decisions, the Paper notes that the UK Repeal Bill will give pre-exit CJEU case law the same binding or precedent status in the UK courts as decisions of the UK Supreme Court. It further notes that the Withdrawal Agreement may state that terms which replicate EU law should be interpreted and applied in line with any relevant pre-Agreement CJEU jurisprudence.

The Paper also contemplates that any EU-UK agreement could specify account being taken of post-Agreement interpretations of EU law by the CJEU, where both parties agree that a divergence in interpretation would be undesirable. Furthermore, it is noted in paragraph 47 that in some agreements, "a two-way" requirement is implemented that takes both the interpretation of the CJEU and another court into account. The example given is the EEA Agreement, which requires the case law of the CJEU and the EFTA Court to be kept under review and divergence referred to the EEA Joint Committee. A similar system in the Withdrawal Agreement or future relationship agreement could result in a peculiar situation where the UK-EU dispute resolution body considers the interpretation of a provision of EU law replicated in the Withdrawal Agreement, drawing on the jurisprudence of both the CJEU and the UK court, and reaching a different interpretation from the CJEU’s. The interpretation of the dispute resolution body would thereafter bind both the EU and the UK in the context of their relationship. However, this interpretation would not bind the EU's Member States, which would remain between themselves governed by the CJEU's interpretation.

Notably, the UK has recognised in the Paper that the EU's own law provides that the CJEU is the final arbiter on matters of interpretation of EU law.  This is a point of significance for the EU, which has sought to intervene, for example, in cases in which ad hoc tribunals determining investor-state cases are perceived to trespass on the territory of the CJEU. The circumstances of the UK's departure from the EU put in very real prospect the spectre of similar difficulties in the context of state to state disputes under the Withdrawal Agreement.

In this context, the Paper points to the recent EU-Moldova Association Agreement, which provides for dispute resolution by an arbitral tribunal composed from a list of arbitrators. Article 403 obliges the tribunal to refer a question of EU law to the CJEU. Article 403 states "Where a dispute raises a question of interpretation of a provision of Union law referred to in paragraph 1, the arbitration panel shall not decide the question, but request the Court of Justice of the European Union to give a ruling on the question. In such cases, the deadlines applying to the rulings of the arbitration panel shall be suspended until the Court of Justice of the European Union has given its ruling. The ruling of the Court of Justice of the European Union shall be binding on the arbitration panel."

Rights and obligations of individuals and businesses under the Withdrawal Agreement and any future relationship agreements

The Paper does not reference investors from the UK in an EU member state or vice versa specifically. Rather, the Paper refers to UK and EU individuals and businesses and recognises (in paragraph 22) that the Withdrawal Agreement or future relationship agreements between the UK and the EU may give rise to rights or obligations for individuals and businesses operating within the UK and the EU.

The UK Government's position is that such rights or obligations would be enforced within the UK by the UK courts and ultimately by the UK Supreme Court. Meanwhile, UK individuals and businesses operating within the EU "should similarly be provided with means" to enforce their rights and obligations "within the EU's legal order and through the courts of the remaining 27 Member States".

The UK's position is that any EU individual or business seeking to enforce their rights in the UK under the Withdrawal Agreement or future relationship agreement would do so without any "direct" jurisdiction of the CJEU over the UK courts. There would be no referral of any questions in relation to such agreement to the CJEU. The Paper is keen to emphasise that this would not weaken the rights of individuals, and that anyone seeking redress in the UK may rely on its long-standing commitment to the rule of law and the "clear rules applied in accordance with the law by the UK's expert, independent and internationally respected judiciary".

There is less clarity about how a UK individual or business will enforce its rights under the Withdrawal Agreement or any future relationship agreement in an EU Member State. Does the ability to enforce rights and obligations "within the EU's legal order" indicate a right of direct action for a UK individual or business before the CJEU in respect of a breach by an EU institution of the agreements?  Further, in retaining the rights of UK individuals and businesses to enforce the agreement before the courts of the remaining 27 Member States, over whom the CJEU retains jurisdiction, the CJEU may still have a role in determining the interpretation of that Withdrawal Agreement or any future relationship agreement if a reference is made to it by a Member State court.

Investor-state disputes

It remains an open question whether there will be a role for investor-state dispute resolution by way of arbitration (or by an investment court system as proposed by the EU Commission and enshrined in the CETA and EU-Vietnam FTA) should either the Withdrawal Agreement or any future relationship agreement contain substantive investment protection provisions.  In such a case, the investor could avail themselves of the protection because it has made an investment which qualifies for substantive protection within the scope of that agreement (not solely because of nationality).

If the future relationship agreement does not provide for direct enforcement of substantive rights by investors, UK investors in certain jurisdictions may benefit from bilateral treaties which pre-date the EU membership of the other Member State (such as the UK-Hungary BIT), and which remain in existence.

Remedies

The Paper emphasises the necessity of remedies and safeguard measures to mitigate any negative effects from noncompliance with the Withdrawal Agreement or any future relationship agreements. The possibility to suspend or even withdraw from the agreement is also mentioned. For these remedies, the Paper refers to mechanisms available under CETA, the EEA agreement, the WTO and the EU-Australia agreement on Passenger name Records. In contrast, giving one of the Parties the ability to impose sanctions such as fines, as is now possible within the EU legal system, is referred to in the Paper as "exceptional".

Conclusion

The Paper takes us little further forward in terms of a concrete and conclusive presentation of the UK's position on enforcement and dispute resolution, aside from a number of definitive statements regarding the exclusion, so far as possible, of a future role for the CJEU. A number of other options are explored, although no clear picture emerges of the UK's preferences. As the detail of the Paper, and the repeated references to the CJEU having no "direct" jurisdiction, make clear, much remains to be considered in the negotiation ahead.

For more information, please contact Andrew Cannon, Partner, Hannah Ambrose, Professional Support Consultant, Vanessa Naish, Professional Support Consultant, Jonas Thierens, Paralegal, or your usual Herbert Smith Freehills contact.